Read With Liberty and Justice for Some Online
Authors: Glenn Greenwald
With Liberty and Justice for Some (15 page)
In December 2010, ProPublic reporter Jesse Eisinger—who covered the financial crisis from the start—protested the lack of prosecutions in the
New York Times
, noting that even on Wall Street, “everyone is wondering: Where are the investigations related to the financial crisis?” Eisinger’s article summarized the shocking state of affairs:
Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything. No top executives at Bear Stearns have been indicted. All former American International Group executives are running free. No big mortgage company executive has had to face the law…. The world was almost brought low by the American banking system, and we are supposed to think that no one did anything wrong?…As a society, we have the bankers we deserve. Sadly, it’s looking as if we have the regulators and prosecutors we deserve, too.
A blue-ribbon report did get issued in January 2011 by the government’s Financial Crisis Inquiry Commission. It was a typical Beltway piece of obfuscation and whitewashing, a work with little real insight and even less consequence. Although the commission found that the crisis could have been averted with greater government regulation and was largely caused by industry-wide fraud, it identified no specific culprits and failed to call for any criminal investigations. Like most panels of its kind, the FCIC did not threaten the perpetrators with any real consequences, despite some harsh language blaming the financial industry as a whole. The report’s release was, in the words of Joe Nocera of the
New York Times
, “almost comical” and failed in its only real mission: to “propose a satisfying theory that explains why so many people did so many wrong, and wrong-headed, things in the years leading up to the financial crisis.” As a result, it did absolutely nothing to bring any real accountability to either the financial elites responsible for the crisis or the government regulators who had allowed it to happen.
What’s perhaps even more astounding than the lack of criminal prosecutions is that, years later, the original practices behind the crisis have hardly been constrained at all. In January 2010, the Treasury Department’s independent watchdog over the Wall Street bailout, Neil Barofsky, issued a scathing report documenting that many of the factors behind the financial crisis are still with us, and that in some respects the situation has actually worsened. “It is hard to see how any of the fundamental problems in the system have been addressed to date,” Barofsky wrote. Banks that were said to be “too big to fail” are now “even larger,” and Wall Street is “more convinced than ever” that it will be saved from failure by the government, thus increasing the motivation to take enormous risks. Wall Street bonuses in the year immediately after the crisis reveal “little fundamental change” in troublesome compensation schemes, while federal efforts to support the housing market “risk reinflating that bubble.” Moreover, the so-called financial regulation legislation enacted by Congress in the summer of 2010 was so diluted by lobbyists and donors from the very industry it purported to regulate that the primary causes of the crisis—including the “too-big-to-fail” quandary and unregulated derivatives markets—went almost entirely unaddressed.
Indeed, the government’s ties to Wall Street are stronger than ever. In September 2010, the
Huffington Post
reviewed Geithner’s calendars as treasury secretary—just as the
New York Times
had done for his calendars as New York Fed chair—and found the same pattern: Geithner still spends most of his time speaking with the very banking executives whom he’s supposedly regulating.
The findings included the fact that “Geithner has met more often with Goldman Sachs CEO Lloyd Blankfein than Congressional leaders.” Indeed, the
Huffington Post
noted, “Goldman CEO Lloyd Blankfein has shown up on Geithner’s calendar at least 38 times through March 2010 since the Treasury Secretary took office in January 2009, three more entries than Senate Majority Leader Harry Reid, 13 more than House Speaker Nancy Pelosi, and nearly four times as many as Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner combined.” What’s more, during his first five months in office, “Geithner met with chief executives from firms like Citigroup, JPMorgan Chase, Morgan Stanley and BlackRock at least 76 times—more calendar entries than for the heads of the regional Federal Reserve banks, who are the top overseers of systemically-important banks like JPMorgan, Citi, Bank of America and Wells Fargo—or for top members of Congress like Reid, Pelosi, their Republican counterparts, and the heads of the Senate and House committees overseeing financial institutions and economic policy.”
The political class’s loyalty and subservience to Wall Street grows ever more brazen. In June 2010, Peter Orszag, one of Obama’s key financial officials as the director of Office of Management and Budget, announced he was leaving the administration. After his departure, Orszag spent a few months as a
New York Times
columnist (advocating for cuts in Social Security as a means of addressing America’s deficit problems), and then, in November 2010, announced he was joining Robert Rubin at Citigroup to become vice chairman of global banking. In other words, after almost two years in an administration that had propped up Wall Street and returned it to tremendous profitability while ordinary Americans continued to suffer extreme economic hardship, Orszag went to collect his rewards from one of the banks that had profited the most from that administration’s policies, and which had received a multibillion-dollar bailout. Orszag’s announcement was branded by the longtime
Atlantic
editor James Fallows as “damaging and shocking.”
His move illustrates something that is just wrong. The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution—and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it’s trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service—this says something bad about what is taken for granted in American public life.
When we notice similar patterns in other countries—for instance, how many offspring and in-laws of senior Chinese Communist officials have become very, very rich—we are quick to draw conclusions about structural injustices. Americans may not “notice” Orszag-like migrations, in the sense of devoting big news coverage to them. But these stories pile up in the background to create a broad American sense that politics is rigged, and opportunity too.
Not even a cataclysmic Wall Street–caused crisis that imposed great suffering on millions of Americans could slow down the wholesale capture of the government by the nation’s wealthiest corporations. The obliteration of the wall separating the private and public spheres continues unabated, and financial elites are now more confident than ever that things such as laws and oversight exist for them in name only.
Dusting off the Telecom Immunity Playbook
Few events better illustrate the ever-expanding lawbreaking license granted to elites than the mortgage fraud crisis of 2010. Beginning in the fall of that year, incontrovertible evidence emerged showing that the nation’s largest mortgage banks were operating a system built on deceit, illegality, and fictitious legal documents, all in the service of foreclosing on the homes of millions of Americans rapidly and without resistance. The fraud here was perpetrated on both the homeowners whose property was illegally seized, and on the courts to which forged documents were routinely submitted. Yet the first instinct of the political class in the face of this sweeping criminality was to find ways to protect the mortgage industry from accountability.
Once the scandal broke, virtually every day brought new stories of banks systematically foreclosing on people’s homes through the use of fake documentation and manufactured affidavits. In many cases, the banks attempted to foreclose without a valid legal claim to the houses they were trying to seize. In some instances, the homeowners being targeted with foreclosure actions were not even in default. It is not hyperbole to say that this activity constituted pervasive theft by the mortgage banking industry: misleading courts into forcibly transferring people’s property to these banks when they had no legal right to it.
A frank assessment of the situation comes from Janet Tavakoli, the founder and president of Tavakoli Structured Finance. For her early warnings about the fragilities in capital markets,
BusinessWeek
dubbed Tavakoli “the Cassandra of Credit Derivatives.” As the mortgage scandal was breaking, she told the
Washington Post
, “This is the biggest fraud in the history of the capital markets.” And she contended that the reason it was not discovered earlier was that “banks were lying and committing fraud, and our regulators were covering for them and so a bad problem has become a hellacious one.”
As the mortgage crisis unfolded, more and more horror stories from homeowners made their way into the news. But because the banks appeared to be supported by the illegitimate documents that they had systematically filed with the courts, it was often difficult, if not impossible, for homeowners of limited means to stave off even the most flagrantly baseless foreclosure actions. Ohio state attorney general Richard Cordray said in an October 2010 interview with the blog Firedoglake, “What we’re seeing is very disturbing…a systematic fraud on the courts of Ohio.” State attorneys general from around the nation expressed much the same sentiment.
In December 2010, the
New York Times
reported the story of Mimi Ash, who upon coming back to her house after a long trip “discovered that someone had broken into the home,” removed all of her possessions, and changed the locks. But the culprit, Ash soon learned, “was not a burglar but her bank”—specifically Bank of America, which “had wrongfully foreclosed on her house and thrown out her belongings, without alerting Ms. Ash beforehand.” Imagine if an ordinary individual had broken into her home, taken all her possessions, and then put her house up for sale without any legal entitlement: that person would be imprisoned without question. But stories like hers are now commonplace; as the
Times
put it, “Lawsuits detailing bank break-ins like the one at Ms. Ash’s house keep surfacing.” And nobody from the banks ever goes to jail.
Despite the magnitude of the fraud—or, more accurately, because of it—the political class quickly reacted not by attempting to impose accountability on these banks, but rather by rushing to protect them from accountability. Trumpeting the same excuse now used reflexively by the political class to justify elite immunity—it’s more important to fix the problems in the future than to seek retribution—the Obama administration immediately announced that it had no intention of punishing any past transgressions, even ones involving unambiguous lawbreaking. In a stunning display, administration officials affirmed the importance of legal accountability in one breath but then proclaimed in the next that their focus would nonetheless be elsewhere. On October 20, the
Huffington Post
reported:
U.S. Housing and Urban Development Secretary Shaun Donovan said Wednesday that the Obama administration…had yet to find anything fundamentally flawed in how large banks securitized home loans or how they foreclosed on them.
“Where any homeowner has been defrauded or denied the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended,” Donovan said at a Washington press briefing. “First and foremost, we are committed to accountability, so that everyone in the mortgage process—banks, mortgage servicers and other institutions—is following the law. If they have not followed the law, it’s our responsibility to make sure they’re held accountable.”
He added, however, that the administration is focused on ensuring future compliance, rather than on looking back to make sure homeowners and investors weren’t harmed during the reckless boom years. The administration is “committed to forcing institutions to change the way that they conduct business,” Obama’s top housing official said, “to make sure these problems don’t happen again.”
Even the administration’s claim that it had “yet to find anything fundamentally flawed” in the mortgage process was the by-product of a deliberate see-no-evil scheme of protection. Commentators, experts, and state officials had already assembled vast and growing amounts of evidence suggesting that the fraud was systematic and reckless, sometimes even deliberate. But by waiting for iron-clad proof before concluding that serious wrongdoing took place, the administration skewed the inquiry in advance to protect the banks from the rule of law.
The career Wall Street financial services expert Yves Smith, writing on her blog, gloomily reflected on the administration’s efforts.
The effect of the official “don’t rattle the markets” posture is a refusal to dig too deeply, and the end result is to sanction fraud. Rewarding criminal behavior has never been the foundation of a well functioning capitalist society; indeed, Singapore was able to become an economic success against considerable odds by having a clean government and tough enforcement. But the powers that be seem determined to try this experiment, since they’d rather not rattle the power structure, no matter how rotten it might turn out to be.
But even more remarkable than the Obama administration’s steadfast refusal to subject these banks to criminal proceedings is the fact that a mere month or so into the scandal, government officials began openly plotting how to vest the mortgage banks with retroactive immunity and thereby shield the industry from all liability, criminal and civil alike.